Chapter 11

Farmer Smith hires Joe to drill a new well. Joe looks at the drilling site and quotes Smith a price of $500 for the new well. After drilling a short distance, Joe discovers hard bedrock, which is unexpected in this locality. To drill through this would take substantially more time and cost more. Joe says he will continue, but only if Smith pays him $2,000. Smith agrees. Smith's promise to pay an increased amount is enforceable for what reason?

This is an unforeseen circumstance.

output contract

a contract in which a seller agrees to sell all of its production to a single buyer

The courts generally inquire into the adequacy of consideration.

false

satisfaction

performance of an accord

In a two-party contract, which is true about consideration?

Each party must suffer a legal detriment.

Lode Mines enters into a contract with Ajax Photo Labs, whereby Ajax agrees to purchase all its requirements of silver needed for photo finishing during the next year, from Lode, at $4.00 per ounce. Over the last 4 years, Ajax has used an average of 10,000 ounces of silver per year. Lode only produces about 15,000 ounces of silver per year. About 2 months into the contract, the price of silver skyrockets to $50 per ounce. Ajax immediately orders an additional 50,000 ounces from Lode. Lode refuses to deliver, and Ajax sues. What is the most likely outcome?

Lode wins; even if requirements contracts are enforceable, the parties must act in "good faith," and Ajax is acting in bad faith.

Mrs. Potter tells a neighbor child, "Since you have been so good as to mow my lawn this summer without my asking, I am going to give you some money." By fall, she still hadn't paid up. The neighbor child files a breach of contract claim against Mrs. Potter. What will be the result?

Mrs. Potter will not have to pay the money because the promise is based upon past consideration.

Frieda is at a Denver Broncos Football game, and she is being bothered by several extremely drunk spectators in nearby seats. She asks a security officer to do something, but the security officer refuses. She then offers the security officer $100 if he'll stop the problem. He agrees, then warns the drunk spectators, after which the problem stops. Frieda refuses to pay the security officer. Is there sufficient consideration in this agreement?

No, because one of the parties did not suffer legal detriment.

Which of the following constitutes legal consideration?

a promise based upon a change in duties and payments

Which of the following most likely constitutes legal consideration?

a promise to buy all that the promisor needs of an item with specifying a minimum quantity

illegal consideration

a promise to refrain from doing an illegal act. Such a promise will not support a contract

Seasonal Selections, Inc. enters into a contract with Arthur's Tree Farm to purchase all of the balsam fir tree boughs that it will need to make Christmas wreaths for the Christmas season. This contract is:

a requirements contract

An agreement to settle an earlier contract that was in dispute is:

an accord and satisfaction

accord

an agreement whereby the parties agree to accept something different in satisfaction of the original contract

When a seller promises a buyer to sell to he/she all of an item that it produces, this results in:

an enforceable output contract

promissory estoppel (Detrimental reliance)

an equitable doctrine that prevents the withdrawal of a promise by a promisor if it will adversely affect a promisee who has adjusted his or her position in justifiable reliance on the promise

Lisa enters into a contract with Acme Groceries, Inc., in which she promises to purchase groceries "as she determines appropriate in the future" from Acme, and Acme promises to sell such groceries to Lisa. This is an example of:

an illusory promise by Lisa

Ralph is injured in an automobile accident. The other driver pays Ralph $10,000, and Ralph agrees not to sue that other driver. This is an example of:

an unliquidated debt

To meet the contractual requirement, consideration must be:

bargained-for and involve a legal detriment to each party

If Sam, a high school senior, promises to go to school every day in exchange for an"A" in his history class, his promise will most likely:

be found to lack consideration as he had a preexisting duty to attend school

In order for a contract to be valid, it must:

contain an offer, acceptance, and consideration

requirements contract

contract in which a buyer agrees to purchase all of its requirements for an item from one seller

illusory promise (illusory contract)

contract into which both parties enter but in which one or both of the parties can choose not to perform their contractual obligations.

best-efforts contract

contract which contains a clause that requires one or both of the parties to use their best efforts to achieve the object of the contract

bargained for exchange

exchange tha parties engage in that leads to an enforceable contract

A cash payment of $1 given to support a gift promise cannot support a contract.

false

A party who promises to complete a job according to the terms of a contract signed in the past has not given consideration due to past consideration.

false

A promise to make a gift that has been completed can be rescinded by the donor if it was not supported by consideration.

false

A promise to not inflict bodily harm on another is supported by consideration.

false

All states recognize that a party may escape from a contract if the inadequacy of consideration shocks the conscience of the court.

false

An agreement where a party gives up the right to sue for injuries in exchange for the right to take part in an activity is insufficient to constitute consideration.

false

An illusory promise is an example of a promise that will be enforced even when consideration is lacking.

false

For the doctrine of promissory estoppel (detrimental reliance) to apply, there still must be a contract with adequate consideration.

false

Forbearance in the form of refraining from drinking or using tobacco for a specified time period cannot be consideration to uphold a contract.

false

Generally, a moral obligation is sufficient consideration to bind someone to a contract.

false

Option-to-cancel clauses always render a contract illusory, because one party is not bound to the contract.

false

Output and requirements contracts are unenforceable because the buyer or seller is not obligated to buy or sell a specific quantity.

false

Requirements contracts are not valid contracts as they are illusory.

false

The doctrine of promissory estoppel holds that most gift promises can be enforced.

false

The nonperformance of an accord is called satisfaction by the debtor party.

false

"Legal detriment" in the context of consideration means:

giving up an existing legal right or taking on a new legal duty

A promise to deliver merchandise in the future:

is consideration because it involves a new legal duty

A promise to refrain from underage drinking in exchange for $10,000:

is not enforceable, as the consideration is illegal

An agreement that is lacking consideration:

is not enforceable, but can be voluntarily performed

Two friends, Ann and Mary, are having margaritas at happy hour. There had been no discussion of who would pay for the drinks. After the third round of drinks, Ann said, "I will pay for everything tonight including your drinks." A couple of minutes later, Ann says, "I've changed my mind. I just remembered that they might be having layoffs at my job tomorrow." Mary wants to force Ann to perform on her promise and threatens to sue. In this circumstance, a court would:

not require Ann to follow through on the promise because it was a gratuitous promise

An illusory promise is:

one that a party has to perform if he or she chooses to do so

past consideration

prior act or performance . Past consideration will not support a new contract, new consideration must be made

gift promise

promise that is unenforceable because it lacks consideration

Mary promises to give her car to her friend. The friend sells his current car for a fairly low price because he is expecting to get a nearly new car from his rich and generous friend, Mary. Mary changes her mind and decides to keep the car. If the friend sues Mary, the court most likely will:

require Mary to pay damages to the friend for any loss he incurred in connection with Mary not keeping her promise

preexisting duty

something a person is already under an obligation to do. A promise lacks consideration if a person promisees to perform a preexisting duty.

Consideration can best be described as:

something of legal value

consideration

something of legal value given in exchange for a promise

legal value

support for a contract when either the promisee suffers a legal detriment of the promisor receives a legal benefit

The requirement that consideration be bargained-for means that:

the inducement for each party to give consideration was the consideration of the other party

A compromise agreement is referred to as an accord.

true

A contract in which the seller agrees to sell all of its production to a single buyer is known as an "output contract."

true

A party has given consideration for a contract if that party suffers a legal detriment even if the other party does not receive a benefit.

true

A preexisting duty can arise from a person's job or position, or it can arise out of an existing contract.

true

In order to meet the consideration requirement, the legal detriment suffered by each party must have been given in exchange for that of the other party.

true

In some states, the courts will examine the amount of consideration and will allow a party to avoid a contract where the consideration is so inadequate that it "shocks the conscience" of the court.

true

Money is a common form of consideration to support a contract.

true

Most courts hold that a liquidated debt cannot be compromised without new consideration.

true

Promises made out of affection generally lack consideration.

true

Promissory estoppel is an equitable doctrine that prevents the withdrawal of a promise by the promissor if it will adversely affect a promissee who has changed his or her position in justifiable reliance on the promise.

true

Sandra accepts an out of court settlement in exchange for dropping a lawsuit. The settlement agreement is supported by consideration in the form of forbearance of a legal right.

true

Something of "legal" value must be given to support a contract.

true

The imposition of a best efforts clause is generally viewed as sufficient consideration.

true

The presumption that contracts are supported by consideration may be overcome by sufficient evidence.

true

Under the law, written contracts are presumed to be supported by consideration.

true

Worldwide Motor Company promised to buy all its needs, "taking into account tires purchased from other tire companies," for automobile tires from Good Tire Co., and Good promised to sell these tires. The contract also provided that Worldwide could cancel the contract at any time, without penalty, and could buy tires from other manufacturers if it so desired. This contract is:

unenforceable, because Worldwide's promise is illusory and there is no mutuality of obligation